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Fast Comment SwedenSeptember inflation unexpectedly back in line with Riksbank's forecast: Exit night, enter light?

  1. No, worries remain. Base effects from last year’s drought-induced price spikes mean inflation set to pick up more
  2. However, forward-looking indicators are rolling over, so next year will see durably slower inflation
  3. Still likely that the Riksbank will call off planned rate rises, in our view

September CPI report: Inflation back in line with the Riksbank's forecast

 




However, we think inflation will slow over the next few years, and we think this will stop the Riksbank from going through with planned rate raises. However, for the near term, we see a pick up in inflation - why you might ask in this weakening economy?

 



One reason is that negative base effects will cease to hamper inflation prints.

 



Another reason is that the details in the outcome were strong, particularly as core services picked up more than we expected, buoying the contribution from overall services higher again.

 



Rising services prices are not surprising given current drivers in the economy. Late-cyclical cost pressure will linger into 2020. Admittedly, the cost pressure is moderate by historical standards, but it will lend some support to inflation. Towards 2021, we expect the deteriorating economy to have eased this pressure substantially; hence, we believe underlying inflation should ease further.

 



Moreover, we already see many leading indicators rolling over, pointing to slower inflation next year. In the near term, the weakening krona offers some resistance, however.

 




Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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